My accountant says that I cant...

[lightw1thoutheat]

So i told my paretns over winter break that i made some money playing poker. Long story short they were cool with it as long i pay taxes on it and invest some. Ive had a roth IRA for a few years now, and have been funding it with my various summer jobs.

As i understood, I could my poker winnings to fund my ROTH IRA(in which you can only place earned income)

Well my mom just called me and relayed a message from their/my accountant. He said that i can't claim poker winnings as earned income. I was pretty sure that i'm right on this one, but he says that he would need some sort of documentation saying this is okay to do.

Can somebody help me out? ive been looking through the searches and on google with no luck.

-light

[amirpc]

My broker and personal banker have both told me I cannot use my money to fuel a roth IRA either. Pain in the ass.

[pubz r 4 nubz!]

Second vote for "he's right, you're wrong."

You can only put as much money in an IRA each year as you have earned income.

Poker winnings do not count as earned income, so if you have no source of earned income, you cannot contribute to a Roth IRA.

[moondogg]

Also, you may not be eligible to put any money in a Roth. I may be remembering this incorrectly, but I believe Roth eligibility is based on your Adjusted Gross Income, and if your gross session winnings (not including the session loss deduction) is above a certain amount (130K?) you are not eligibile to contribute to a Roth.

[moondogg]

More info from the IRS website (http://www.irs.gov/newsroom/article/0,,id=134667,00.html)

[ QUOTE ]
Contribution Limits
In general, if your only IRA is a Roth IRA, the maximum 2004 contribution limit is the lesser of your taxable compensation or $3,000 ($3,500 for those age 50 or over). For 2005, this amount increases to $4,000 ($4,500 if 50 or older in 2005).

The maximum contribution limit phases out if your modified adjusted gross income is within these limits:
<ul type="square"> $150,000-$160,000 — Married Filing Jointly
$0-$10,000 — Married Filing Separately (and you lived with your spouse at any time during the year)
$95,000-$110,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse) [/list]


[/ QUOTE ]

[Hulk Hogan]

my accountant said the same thing. does anyone know why it's not earned income, even though we pay taxes on it? /images/graemlins/confused.gif

[AcmeSalesRep]

[ QUOTE ]
As i understood, I could my poker winnings to fund my ROTH IRA(in which you can only place earned income)

[/ QUOTE ]


You understood wrong...unless you are filing as a professional gambler, your poker winnings are not earned income.

Acme

[AcmeSalesRep]

[ QUOTE ]
my accountant said the same thing. does anyone know why it's not earned income, even though we pay taxes on it? /images/graemlins/confused.gif

[/ QUOTE ]

Lots of sources of income are not considered earned income. Interest you receive on your savings account is not earned income. Bond interest is not earned income. Stock dividends are not earned income. Unless you are cheating on your taxes, you are paying taxes on those sources as well.

For the most part, earned income is compensation for a job performed. For most people, poker is not their job, so their winnings do not qualify.

(Note: I am not a tax professional. I have just read tons on the subject.)

Acme

[Hulk Hogan]

oh, that makes sense. i feel stupid now lol thanks. /images/graemlins/blush.gif

[sfwusc]

Yea, b/c it isnt taxed as earned income. It is taxed as income.

If you are a professional Gambler and can meet the test from the court cases, then it can be earned income. It would go on a sch C and have FICA taxes on it. Be ready to defend it with the IRS though.

SFWUSC

[detroitplayer]

Your social security benefits are also relient on earned income. Like that's going to be around by the time most people here retire anyway. /images/graemlins/confused.gif

[lightw1thoutheat]

thanks for all the help guys.
just sucks now that i have to go back to a very shitty internship this summer to make that money. well its still money, im gonna stop complaining now.
-light

[AcmeSalesRep]

[ QUOTE ]
thanks for all the help guys.
just sucks now that i have to go back to a very shitty internship this summer to make that money. well its still money, im gonna stop complaining now.
-light

[/ QUOTE ]


Look at it this way...if you just had your internship, you would put x% of all your "earnings" into savings. With your poker play, you can put more money into savings and have it be a lower percentage of your total earnings (earned income plus poker).

Another thing...IRAs are not the only way to save for the long-term. You can open up a typical brokerage account to save if you would prefer to save your poker winnings and not take on an internship position.

Acme

[TomBrooks]

I'm curious why you ended your subject with '...' instead of writing out "fund IRA", or "Fund IRA w/ Poker $" or something like that.

[SinCityGuy]

If you file under Schedule C as a professional gambler, you can invest up to $42,000 in a Uni-K 401 plan, the first $15,000 of which is deferred taxable income.